Retiring gives you the freedom to go out and pursue your dreams and finally have the time to really enjoy yourself. However, it’s a big decision. If you’re considering retiring in 2018 or 2019, there are some major things that you should consider first.
Are Your Savings Substantial Enough?
The first big consideration is the size of your savings, and especially, how long they will be able to last. To work out whether your savings are substantial enough for you to be able to live on the income, and still have some spare to enjoy yourself, there are a number of methods that you can use:
- IRS Required Minimum Distribution (RMD) Tables – From 70 ½ years of age, RMD tables will be able to specify the exact amount that you have to withdraw from your tax-advantaged retirement accounts on a yearly basis.
- Annuities Shopping – Despite potentially high fees, annuities can give you a retirement income that is guaranteed. Picking an annuity, like a deferred fixed annuity, can help you gain a reliable retirement income.
- Percentage-Based Rule – Using the 2.5% to 3% rule means that you withdraw that amount each year and increase for inflation. If you can survive on that amount, then your savings are likely to be the right size for retirement.
It’s worth taking a look at all of the different methods for calculating whether your savings are big enough. Many people spend much more than they were expecting in the first years of retirement, so it’s important to factor that it, as well as all the new expenses that you might not be used to paying, and those that you’ll no longer have to pay.
Does Social Security Factor into Your Retirement Plan?
Some people choose to use their social security benefits at the start of retirement, whilst others choose to wait. If you know that you’re going to need your social security benefits, that it’s important to really consider your retirement age.
If you retire after you’re 66 (for those with birthdates between 1943 and 1954), or 67 (if you were born after 1960), then you’ll meet the Full Retirement Age (FRA). Not meeting the FRA means that you’ll have to sacrifice part of your social security benefits. If you wait until you’re 70 years of age, you’ll have fully maxed out your social security benefits.
Can You Cover the Extra Costs of Healthcare?
Anyone who retired after the age of 65 is entitled to Medicare, but this doesn’t cover everything. From the cost of hearing aids to nursing homes, there are a range of things that Medicare won’t cover. Coinsurance costs and expensive premiums also have to factor into your expenses and budgets in retirement.
According to the Employee Benefit Research Institute, for a 90% chance of fully accounting for your costs for healthcare after retirement, you’ll need savings of about $370,000. High premiums may also have to be paid, even if you qualify for subsidized coverage.
How Does the Tax Situation Differ?
With the exception of funds held in a Roth IRA or Roth 401(k), withdrawals will still be taxed after retirement. It’s possible that up to an 85% tax rate will apply to your benefits, and you may have to pay tax on your social security benefits. When working out if 2018 or 2019 are the right years to retire in, it’s essential to work out how tax will influence your income and savings.
Is It the Right Time for You to Retire?
If you can safely say that your finances are in order and fully prepared for retirement, then 2018 or 2019 may just be the perfect time for you to retire. Still not sure whether your finances are in a suitable condition? If you’re worried about going into retirement, then it’s never too late to get your savings back on track for a worry-free retirement.
Always searching for ways to make your retirement easier? Call us today for advice and guidance about your personal insurances and how they might be different as you start considering retirement.